Section 2: The Questions & Answers

The questions and answers provide the synthesis and analysis of the issues. In the second section, the Q&A ties all the information together and reaches some conclusions.

Question #1: The first question is probably the methods of evaluation - NPV, IRR, MIRR, payback period, discounted payback period, and profitability index. All various methods of evaluation are not separate questions but parts of the same question. Use as many as you can to get full points.

Question #2: The second question is a sensitivity question and narrows in on the assumptions/inputs and asks mathematically and descriptively what happens if they change. The three variables you choose are the ones that matter most. They change the answer from an accept to a reject, or they change the value dramatically. For example, McDonald's cares about the price of beef while Southwest Airlines cares about jet fuel price. What are the three input variables that make or break your project?

Question #3: The third question is a scenario question that asks mathematically and descriptively what happens under different scenarios. What happens if there is a recession? Or a competitor? Or a merger? Or interest rates change dramatically? Or regulation changes dramatically? What are the best-, worst-, and most-likely case scenarios? You are examining your answer under different environments. Under what conditions is the project still accepted, and under what conditions does the project become a reject?

Question #4: The fourth question is a breakeven question. What are the minimum events that need to occur for the project to succeed? You might be referring to some of the information discovered and proven in the second and third questions. A common question that a financial analyst needs to answer is the minimum conditions that need to be met for the project to be accepted? How likely are those conditions to occur?

Question #5: The fifth question brings in a topic from later cases such as cost of capital, capital structure, working capital, financial statement analysis, and/or practice valuation. This question should still be a mathematical question with discussion. You might consider different discount rates and the impact of changes in the capital markets on your capital budgeting analysis. You might consider what the most likely response from a competitor will be and how does that affects your analysis. You might consider how the firm will fund the project/event. What happens to the debt level? How does the new debt affect the results? What happens to the value of the firm? You might consider how the value of practice/entity changes because of the project.

Question #6: The sixth question extends the analysis using the information gleaned in the first few questions to address a more complicated issue. The issue might not have numbers associated with it. It might be more of a discussion than a calculation. As a note, higher-scoring papers usually have a combination of course concepts and techniques - i.e., math with discussion - for this question. For those students who want to include ACA or Covid-19, this is the spot where it would go. For example, a case might show how the pandemic changed an input and changed the NPV decision.

Question #7: The seventh question is the synthesis question - tying all the ideas together so that the reader concludes that under these circumstances, option X is better, and under these circumstances, option Y is better. It could be that X is usually the better option, but you need to have had the student identify the times/conditions when Y is the better option in the prior questions. If X is usually the better option, the case structure may focus more on which variables matter most and, thus, on what the decision-maker should focus and even try to control. Be sure to provide conclusions at the micro-level of providers/firms. How can they use this information?